OPEC said Friday a global crude glut that has squeezed the market and sent prices plunging over the past year “may be easing” as a result of countries outside the oil producing cartel dropping their production.
“There have been consistent signs of declines in non OPEC-production which should likely flip the global oil market into a net deficit in 2017,” the Organization of the Petroleum Exporting Countries noted in its May report.
Non-OPEC countries are expected to lower their crude supply by 740,000 barrels per day (bpd) to average 56.40 million barrels per day (mb/d).
The drop is mainly based on “lower expectations for crude oil production from China, Brazil, India and Vietnam, which outweighs total upward revisions in the UK and Russia”, the cartel said.
Global production levels are also down because of the declining number of drilling rigs and the closure of high-cost facilities in the United States, according to the report.
The forecast mirrored that of the International Energy Agency, which said Thursday that the worldwide oversupply is set to “shrink dramatically” later this year.
Oil prices surged to a new 2016 high after the IEA’s announcement and are well over $ 46 a barrel after plummeting below $ 30 early in the year.
But they still remain far below the $ 100-a-barrel mark of mid-2014.
Despite its more positive market outlook, OPEC warned that at this stage “nothing has fundamentally changed as the oversupply remains and global oil inventories are at record highs”.
While demand for OPEC oil is projected at 31.5 mb/d, the cartel’s production averaged 32.44 mb/d in April — an increase of 188,000 bpd.
The rise was in part driven by Iran, which rejoined the market after international sanctions were lifted following a landmark nuclear deal with world powers last year.
In the past, the 13-nation OPEC traditionally cut back on production to support prices.
But cartel kingpin Saudi Arabia this time changed tack by stepping up output to defend market share and push out higher-price producers like US shale oil companies.
While the strategy appears to be working, it has also meant that all oil producers have suffered from the more than 60-percent decrease in oil prices over the past two years (Other OTC: UBGXF – news) .
